LGT's Profit Sense

Gift and Estate Taxes Are Changing

As many of you may already know, there was a significant increase in the lifetime exclusion for Estate and Gift taxes. Lets break it down.

Prior to the Tax Cuts and Jobs Act (TCJA) there was a lifetime exclusion for gift and estate taxes of $5,490,000 (2017). As of January 1, 2018 the lifetime exclusion was increased to $11,180,000. This means that during your lifetime you can gift up to $11.18 million without having to pay a dollar of estate and gift tax. This also means that upon your death, you can pass down your assets to your decedents, tax free, up to your remaining lifetime exclusion ($11.18 million less any amounts used during your lifetime).

In addition to your lifetime exclusion, you also have an annual exclusion of $15,000 (up from $14,000 in 2017). A taxable gift occurs when a gift is made to a specific person or entity worth more than $15,000 during any calendar year. For example, if you were to gift $20,000 to your best friend, then only $5,000 of that gift would be considered a "taxable gift". This would, in turn, reduce your lifetime exclusion by $5,000. One thing to note, gifts given to your spouse are almost never considered a taxable gift.

It is important to remember that if you are married, you can elect to gift split on your Form 709 Gift Tax Return if you are gifting separate property, and if you are gifting community property (in community property states for example) then you can report 1/2 of the gift on each spouse's Form 709 Gift Tax Return. The effect of this is that you can gift $30,000 to a specific individual tax free each year. For example, if you and your spouse were to gift $60,000 to another married couple, then the entire $60,000 would be tax free.

To recap - the lifetime annual exclusion for estate and gift tax purposes is now $11.18 million and the annual exclusion for gift tax purposes is $15,000. We recommend you consult your tax advisor for estate and gift tax planning advice.